Okay, while yesterday’s price action wasn’t all that exciting on the surface, the pieces of the market puzzle are continuing to reveal themselves one day at a time. And in fact, I think this most recent daily candle only adds to the intrigue.

Allow me to explain…

Thursday Morning Market Outlook:

After Tuesday’s drift lower to start the trading week, I was watching yesterday’s open very carefully. Because on the back of strong earnings results, futures were broadly higher and it looked like bulls were ready to charge once more. The Dow was up nearly 200 points as UTX, IBM, and PG all reported earnings numbers that positively surprised the street.

But the good times didn’t last. Instead, sellers quickly came out of the shadows and pushed prices down to breakeven on the day. And then, they went lower.

In fact by early afternoon, the Nasdaq was firmly in the red and it felt like the December panic selling might be almost ready to resume. As it tuned out though, any predictions of downside appear to have been premature since indexes rallied back to even as we approached the closing bell.

So to help you see what this looks like in practice, here’s an updated SPY daily chart:

As you can see, SPY once again held the (declining) 50-day moving average. And it still remains sandwiched between a confluence of different moving averages. So in my experience, this alone is a pretty good indicator that the big picture trend remains a little unclear right now.

But considering the animated bounce we’ve seen during the last four weeks, I think this calmer price action is a welcome change of pace. And actually, in Tuesday morning’s note I said it would be constructive for bulls if they could consolidate gains sideways through time. At present, that appears to be what’s happening.

The big question next will be: is this a higher high or higher low?

While I’m not willing to predict, I am getting prepared. I’m open-minded that another leg higher could take us up to around $280 on SPY; whereas, a couple big selling days may set up a retest of the 2018 lows. In either case, my plan will be to adapt on the fly. But I find sketching out possible scenarios ahead of time can help make it easier to feel confident when prices start moving fast.

Looking for more potential clues…

  • I was very interested to see tech stocks like FB and TWTR getting hit hard yesterday while utilities outperformed all other sectors.
  • Small cap stocks also lagged their larger cap brethren, which is another trend I’m going to be watching as the rest of the week unfolds.
  • Oil started to unwind yesterday afternoon so I’ll be carefully observing if any further downside in crude starts to spread into other asset classes (particularly high yield debt, which can be easily tracked by the JNK and HYG ETFs).

In addition to these tells, I also think the price action in financials could be instructive. Because you’ll recall the financials kicked off earnings season with mixed results a few weeks ago. And since then, they’ve rallied quite strongly… right back up into potential resistance levels.

So with earnings out of the way, I’m curious to see how the technical picture evolves for this group of stocks. Can they break back into their prior trading ranges? Or will they roll back over as sellers unload their shares?

Personally, I’m not too optimistic. But take a look for yourself.

First, here’s JPM: 

Next, check out C:

And now finally GS:

So do you see what I mean? And while earnings reports from social media and consumer tech stocks might give the indexes another boost in the short-term, I think how financial stocks come to terms with their earlier levels may be instructive for the market as a whole, especially now that they have a full quarter until the next report.

So again, I think the key question facing us is still whether the current pivot point is a higher low, or a lower high. Only time will tell of course. But this dynamic is playing out in equities across the world, as shown in the updated ACWI weekly view…

In my opinion, the technical picture here is still pretty bleak. It’s been 12 months since stocks peaked globally, and a full year later they’re still 10% below all-time highs with a lot of resistance to work through. So…

Looking ahead, I think one of the other interesting pieces continues to be emerging markets. If EEM can keep consolidating in an orderly manner this week (preferably finishing near the highs), we might have a breakout around the corner, which could provide an added boost to stocks around the world.

So keep an eye out on this one. Because once more we have another inflection point at hand. And it finally feels like we’re getting closer to resolution.

Now turning to my own portfolio, I’m happy to report yesterday’s churning trading session didn’t trigger any stop losses for me. And in fact, I actually have one new buy alert to fill you in on this morning.

Trade Alert:

Buy IAC (Personal Holdings and Model Portfolio):

IAC was one of two stocks thats showed up on my S2 stock screen last night. And the other result (LFVN), is already a holding I own! So I’m going to go with the former this morning and pick up some shares of this digital conglomerate. It’s a unique business that owns stakes in Match Group (Tinder), Investopedia and a host of other online enterprises. I had a nice trade in this stock last year and am looking for a repeat.

Plus, I like the way the chart is hitting 50-day highs out of a relatively smooth shorter-term bottom. Do keep in mind this one is reporting earnings next week so, if that factors into your approach you’ll want to adjust accordingly. At the very least, expect some volatility. With index prices still below the 200-day MA, I’m also continuing to keep position sizes small.

Now here are the details of this new buy…

  • Target entry price: $201.83
  • Stop loss: $187.51 ($14.32 below entry)
  • # of shares: 15
  • Risk: $214.80 (0.22%)
  • Trading system: S2

Now as we head into the back half of this short trading week, a number of individual tickers continue to hit new highs. Plus, a few semiconductor stocks reported strong earnings last night and might be ready to follow through at the opening bell.

So let me show you a few of my favourite charts today – just be aware of earnings dates.

Thursday Morning Charts To Watch:

HMHC has an interesting look here in my opinion. After trending downwards for the last few years, the stock looks to have turned around and might be pushing for another leg higher   

BRFS is another chart that looks interesting and potentially carving out a bottom, with some top-down tailwinds from strength in Brazilian stocks generally. Keep it on watch for a pop. A new weekly closing high would be compelling to me

LFVN is a stock I mentioned earlier in the trade alert section. But I wanted to share the chart anyways because it’s a current holding that appears to be charging higher on big buy volume. Earnings are scheduled Feb 4th

LRCX isn’t a chart I’d be looking to trade considering the downtrend. But I’ll be watching it to see how the price holds up after the company reported strong results after the bell yesterday. The initial reaction looks good but let’s see if it can stick. XLNX and TER also reported good numbers so the whole semiconductor space could get moving.

STM is an idea along the same lines – another stock in the semiconductor space with a chart that looks like it could have some upside if the market cooperates. I like the tight consolidation the last few weeks and earnings results look good.

Alright, it’s not just stock ideas I want to leave you with. To keep you thinking in the right direction this morning here are some carefully curated articles to help you ease into the day (or to bookmark for a break later).

Further Reading

“This is perhaps the biggest flex of all: Netflix is so confident in its position it is effectively stating that if customers choose to watch TV, they will choose Netflix. The company knows its model is that much better.” Netflix Flexes

“The idea is that today’s turmoil fertilizes the soil of growth for a new generation of market leaders and promising technologies.  Stocks and industries that maintain their upward paths even during bear market times are candidates for tomorrow’s large opportunities.” Navigating Turmoil and Opportunity in Markets

“What’s different now is that the slowdown has clearly started. Instead of being some theoretical eventuality, the process has begun, and it’s too early to assume it will be an easy fix.” Best Way To Short China?

“For me it’s been realizing that what makes people happy is having options – doing what you want, with who you want, when you want, where you want. And options come from savings and assets, which are the opposite of spending.” The Best Returns

“We tend to ignore how often luck changes in our lives and end up extrapolating out our most recent experiences.  This explains how one negative event can lead to fear and one positive event can lead to greed.” Fickle Fortune

Alright, that’s it for now! Let’s see how things shake out at the close and I’ll be back at the same time tomorrow with another update for you.

For more commentary and ideas throughout the day, you can find me on StockTwits and Twitter sharing ideas. Any questions or ideas of your own? You can shoot me an email or comment below. Happy trading!

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